The FTSE 100‘s dropped 5% in recent days, lurching back to levels last seen four months ago. But it’s not alone. Global stock markets have slumped in recent weeks on fears of a recession in the US.
But I’d note that stock market wobbles are normal and relatively frequent occurrences. According to Oxford Economics, the S&P 500‘s faced a drop of 5% or more at least once a year for the past four decades.
Bear in mind that even drops of 10% are common. So although they can be uncomfortable, investors should assume they’ll happen.
Should you invest £1,000 in Next right now?
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As a long-term investor, stock market tumbles could be excellent buying opportunities.
It’s not without risk, but I’m keeping my eyes peeled for opportunities to add to my Stocks and Shares ISA once I save some cash.
Soaring to new heights
At the top of my list is FTSE 100 aerospace firm Rolls-Royce (LSE:RR.). I first liked this stock over a year ago when it started making progress with its multi-year transformation programme.
Despite its share price gaining over 125% in the past year, it still looks good to me. In the first half of 2024, operating profit more than doubled to £1.65bn from the prior year. That’s partly due to a jump in its profit margin, which now stands at 18.6% versus 10.6% a year before.
Much of the improvement came from its after-market service agreements. To explain, Rolls-Royce makes money by selling engines for aircraft, and then has long-term agreements to service them. The latter provides a much more lucrative cash flow and profit margin.
Reflecting the strong performance, Rolls-Royce raised guidance for 2024 and announced plans to pay a dividend for the first time since the pandemic.
Bear in mind that a part of its business is cyclical. For instance, if there was a global recession, demand for travel and its jet engines could fall. And with concerns around the US economy, it’s a point to be aware of.
That said, in the long term, I could look through this. Overall, I see it as a resilient, competitive and growing business.
Top FTSE 100 retail share
Another FTSE 100 share that’s reaching new business highs is fashion/lifestyle retail giant Next (LSE:NXT). It recently reported full-price sales for the second quarter exceeded its expectations by £42m. It also raised its profit guidance for the full year, led by additional sales and cost savings.
Next’s share price jumped 8% in reaction to this trading statement, but it has since fallen with recent market turmoil. This looks like an opportunity to me.
Next is a first-class retailer and I’d describe its shares as high-quality. For instance, it offers a whopping 31% return on capital employed, 20% operating margin and steady earnings growth. And with a price to earnings ratio of just 14 times, it’s certainly not expensive or overvalued, in my opinion.
Bear in mind that, like Rolls-Royce, it’s a cyclical business. The often-temperamental UK retail environment can result in more ups and downs in business sentiment.
That said, as a long-term investor who looks through short-term noise I could be rewarded for owning a part of an excellent business.
